DSW to grow Canadian footprint with Town Shoes acquisition

DSW and Town Shoes Limited have entered into a definitive agreement whereby DSW will purchase for cash approximately 44% interest in Town Shoes, the largest footwear and accessories retailer in Canada, for CAD $68 million — or approximately $62 million based on current exchange rates.

The transaction has been approved by each company's board of directors and is expected to close in May, subject to customary closing conditions.

Town Shoes is the market leader in branded footwear in Canada, with sales of CAD $291 million in its fiscal year ending Jan. Town operates 182 locations across Canada primarily under The Shoe Company, Shoe Warehouse and Town Shoes banners. The company is predominantly owned by Alberta Investment Management Corporation on behalf of certain of its clients, and Callisto Capital, a Canadian private equity firm.

DSW is purchasing its initial 44% stake from AIMCo and may acquire additional shares from certain other minority shareholders as part of its initial investment. Additionally, DSW will have the right to purchase the balance of Town Shoes from the remaining shareholders, including Callisto Capital, after four years at a pre-determined EBITDA multiple. Callisto, on behalf of itself and the remaining shareholders, has the right to put the balance of the company to DSW Inc. after three years at a pre-determined EBITDA multiple. DSW’s initial stake provides 50% voting control and board representation, both of which are equal to that of Callisto.

The transaction, which the company anticipates to record under the equity method, is expected to be slightly accretive to earnings in 2014, excluding one-time transaction expenses.

"We're excited about our new relationship with Town Shoes,” said Mike MacDonald, president and CEO, DSW. “We have looked at Canadian entry options for some time and decided to acquire an existing operation with a long track record of success and to use this operation as a base from which we can establish the DSW brand in Canada."

"Our partnership provides us a unique opportunity to bring DSW into Canada through Town Shoes' platform. We hope to share best practices in sourcing, operations, inventory management, and omnichannel integration to our mutual advantage," MacDonald added.

"Our combined retail banners provide different avenues for serving unique customer lifestyles in Canada, ranging from Town's full priced, specialty retail model to The Shoe Company's and Shoe Warehouse's off price concepts,” said Bruce Dinan, president and CEO, Town Shoes. “We are excited to partner with a company that shares our mission to offer our shoe loving customers compelling national brands at incredible value."

Peter J. Solomon Company is serving as financial adviser to DSW in connection with the transaction.



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